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Southwest hikes fares; competitors follow suit

THE ASSOCIATED PRESS

DALLAS -- Southwest Airlines Co. says it's raising ticket prices to offset the high cost of jet fuel, and several other big airlines are following its lead.

On Monday, Southwest and its AirTran Airways subsidiary raised fares from $4 to $10 per round-trip, depending on the distance. It's Southwest's third increase this year, and spokesman Brad Hawkins said it's all due to higher fuel costs.

United Airlines, Delta Air Lines, American Airlines, US Airways, Frontier Airlines and Virgin America confirmed that they matched Southwest.

According to government figures, spot prices for jet fuel are up 12 percent in 2012 but just 4 percent from a year ago.

The February schedule at McCarran International Airport shows 1,399 flights a week between Southwest and subsidiary AirTran, a commanding lead over all other airlines and more than quadruple second-place United/Continental at 312 weekly flights.

Southwest continued to carry by far the largest share of local passengers in 2011, with 16.6 million people accounting for 40 percent of the airport's total.

Southwest said this month that higher-than-expected fuel costs mean it won't earn a profit for the first three months of the year. The airline also reported a slowdown in passengers booking flights in late February -- a trend not reported by other airlines.

J.P. Morgan airline analyst Jamie Baker said the fare increase suggests Southwest is now more optimistic about travel demand.

But Wolfe Trahan analyst Hunter Keay noted that Southwest has hedged less of its fuel supply than four years ago. Hedging involves purchasing a complex combination of securities that effectively create an insurance policy against a sharp upward spike in fuel prices.

Southwest added $2 each way for flights as long as 500 miles, $3 each way for flights 501 to 1,000 miles and $5 each way to fly more than 1,000 miles. A little more than half of the carrier's Las Vegas flights are for less than 500 miles, principally in California and Arizona.

Analysts surveyed by FactSet expect the Dallas-based airline to post a first-quarter loss of 4 cents per share, or about $36 million, after special items. They expect profits later in the year and full-year adjusted earnings of $490.7 million, or 67 cents per share.

CEO Gary Kelly last week said the first-quarter outlook was "no need to panic" because it's usually the weakest period of the year for airlines.

Kelly added that if fuel prices continue to rise, Southwest could be forced to reduce flights. When airlines cut flights, they save money because they don't burn as much fuel, and they also hope to drive up prices by reducing the supply of seats.